What is the sensitivity of OCF to changes in variable cost

Assignment Help Financial Management

Reference no: EM131059907

We are evaluating a project that costs $500,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 50,000 units per year. Price per unit is $40, variable cost per unit is $25, and fixed costs are $600,000 per year. The tax rate is 35 percent, and we require a return of 12 percent on this project.

What is the sensitivity of NPV to changes in the sales figure? Calculate the change in NPV if sales were to drop by 500 units. What is the sensitivity of OCF to changes in the variable cost figure?

Reference no: EM131059907

Questions Cloud

Investment opportunity that offer annual operating cash flow : Assume that you are looking at an investment opportunity that offers an annual operating cash flow of $40,000 per year for 4 years. The initial investment to purchase the necessary equipment is $200,000. You assume that you can sell the equipment at ..

Which information is more valuable to marketing managers : Which information is more valuable to marketing managers—information from internal databases, from marketing intelligence, or from marketing research?

Determining the whistle-blowing train : What frequency is heard by a man on the ground facing the whistle-blowing train? What frequency is heard by a man on the other train?

Concept of earnings management-define earnings management : Concept of Earnings Management. Define earnings management. Discuss why it is difficult to discern whether a firm does in fact practice earnings management.

What is the sensitivity of OCF to changes in variable cost : We are evaluating a project that costs $500,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 50,000 units per year. Price per unit is $40, va..

The covariance matrix is of diagonal form : Consider the latent roots of Table 4.13 in Example 4.14 (a) Using the chi-squared criterion (Eq. 4.6), test whether the covariance matrix is of diagonal form.

Project requires initial investment in net working capital : Summer Tyme, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $3.9 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will hav..

Contemporary issues in the e-commerce management sector : CIS8100 Assignment: E-commerce Research Report & Prototype Website. Assignment requires you to research and develop a report to examine contemporary issues in the e-commerce management sector, including further extending your prototype website to f..

Describe the causes manifestations and treatment of asthma : Describe physical symptoms and clinical signs of altered lung function and laboratory tests that can be done to further define pulmonary disease

User Account

All Pages